Legislature approves state budget with pay raises for state workers, teachers; cuts for many agencies

The General Assembly on Monday passed and sent to Gov. Steve Beshear a $20.3 billion, two-year spending plan that includes long-awaited pay raises for state employees and school teachers, but also continued funding cuts for public universities and many state agencies.

FRANKFORT — The General Assembly on Monday approved and sent to Gov. Steve Beshear a $20.3 billion, two-year spending plan that includes long-awaited pay raises for state employees and schoolteachers, but continues to cut funding for public universities and many state agencies.

The legislature adjourned late Monday for a two-week break. It's scheduled to return April 14 and 15 to consider any vetoes by Beshear, pass a handful of last-minute bills and then end its annual session no later than midnight April 15.

The budget will issue far less debt than Beshear proposed with his budget plan in January. It has $743 million in general-fund bonds, compared to $1.07 billion in Beshear's plan, and $721 million in agency-supported bonds, compared to $974 million in Beshear's plan.

The budget's "structural imbalance" — how much its spending exceeds its dependable, recurring revenue — is $207 million, compared to $231 million in the governor's proposal. That hole is filled through a number of budgetary maneuvers, such as sweeping tens of millions of dollars from the bank accounts of state agencies into the state's general fund.

By reaching a compromise on the state budget with two legislative work days remaining, the Democratic-led House and Republican-led Senate avoided the partisan breakdown seen in some years that forced special sessions costing $60,000 a day.

During a brief floor speech, House Speaker Greg Stumbo, D-Prestonsburg, thanked Senate Republican leaders for helping his chamber to avoid "Washington gridlock" during a grueling, 18-hour negotiating session over the weekend.

"It may have looked like big-time wrestling, where we're trying to grab each other's throats and smack each other," Stumbo said. "And I'm going to be honest, the thought may have crossed our minds a time or two. But what really happened was, it worked. The gridlock and stalemate that has engulfed, I think, both political parties in Washington didn't make its way to Kentucky. You can go home during your veto break and tell people, 'It worked. We did what you paid us to do.'"

The House vote on the executive branch budget, which holds most of the money, was 91-9. The Senate vote was 37-1. The judicial and legislative branch budgets also were approved by overwhelming majorities.

Some of the largest items in the budget changed little from the time Beshear proposed them to lawmakers in January until final passage Monday. For example, the state's main school funding formula, known as SEEK, will go up by $189 million over the next two years, the bulk of which will be spent on raises for teachers and other school employees of 1 percent in 2015 and 2 percent in 2016.

Also, the budget will fully fund the Kentucky Retirement Systems, or KRS, pension contributions for employees of state government and nearly all "quasi-public agencies" enrolled in the system, costing $207 million extra over two years. Beshear and the legislature committed to that last year as part of "pension reform." The key KRS fund that covers about 90,600 people has $2.6 billion in assets and $11.3 billion in assumed liabilities, making it only 23 percent funded.

"The legislature and Governor Beshear have followed through on a commitment made last year to stabilize the financially fragile pension fund covering most state employees," said Jim Carroll, a former state parks worker and spokesman for a Facebook community of state retirees. "In future sessions, we hope Frankfort will secure a dedicated funding source for pensions."

Much of state government will see budget cuts of 2.5 percent to 5 percent, with several protected exceptions, such as state prisons and the Medicaid program. Some agencies will have lost 41 percent of their funding since the economic recession of 2008, making it possible they'll have to lose more employees, close offices, steeply increase the fees they charge the public and take other severe steps.

Although Beshear proposed a 2.5 percent operational budget cut to the state's universities and community colleges, the legislature reduced it to 1.5 percent.

For the University of Kentucky, that will mean a loss of $4 million in state funds, UK President Eli Capilouto told students and employees in an email late Sunday. The state has cut $55 million in recurring funds from UK since 2008, Capilouto wrote.

On the bright side, Capilouto noted, the budget gives UK support to go ahead with several projects,

"We received authority to move forward — using our own dollars and private fund-raising efforts — with agency bonds for $160 million to renovate and expand the student center and $150 million to continue the fit-out of Chandler Hospital. And we received a $35 million investment in bonds from the state — to be matched by $30 million in private fundraising efforts — for the College of Law," he wrote.

Senate Republicans insisted the budget include language prohibiting any state funds from going to implement the federal Affordable Care Act in Kentucky. Stumbo shrugged that off Monday as political rhetoric because the Beshear administration says federal funds will pay for expanded Medicaid enrollment and the state's health exchanges during the two years covered by the budget.

Senate President Robert Stivers, R-Manchester, warned that if Beshear vetoes the Affordable Care Act language, his chamber will vote to override it.

"If the governor strikes the language and the House won't override the veto, I think that's the worst political vote the House could take at this point in time," Stivers said.

Budget documents Monday show that Kentucky expects to spend $7.9 billion in fiscal 2015 and $8.2 billion in fiscal 2016 to provide Medicaid coverage to more than 1.1 million people, or about one-fourth of the state's population, due largely to their low incomes. Most of that money is federal.

The state's two-year road plan remains in negotiation between the House and Senate. A proposed 1.5-cent-a-gallon increase in the gas tax, backed by the House but opposed by the Senate, appears dead. On Monday, Stumbo said the road plan would be based on revenue projections from the existing gas tax, as the Senate wanted. The Senate plan called for spending $3.67 billion on transportation projects over the next two years, while the House version of the bill would spend $3.92 billion.